BAE Systems has soared to the top of the FTSE 100 on reports it is considering a tie-up with EADS, the parent company of Airbus.

The suggestion was the two sides were in talks about a combination of their businesses - perhaps a merger or joint venture - with discussions at an advanced stage. Bloomberg said a final deal had not been reached and the talks could still fall through. But traders seemed to like the suggestion, pushing BAE shares more than 9% higher initially. They are now 25p higher at 353.7p, up nearly 8%.

Neither side would comment on the speculation. The two sides already have links, both owning a stake in the Eurofighter joint venture company.